2015-16 Federal Budget highlights – What it means for retirees

The Federal Budget delivered on Tuesday 12 May 2015 contained a number of important proposals potentially impacting retirees, including:

 increases in the Assets Test thresholds and the Assets Test taper rate for the Age Pension

 abandoning changes to the indexation of the Age Pension and the deeming and Income Test thresholds

 removal of the former home rental income exemption for aged care residents

 a higher Medicare levy low income threshold.

The following summary contains more details about each of those measures and what they may mean to you. It is important to discuss your particular circumstances and how these changes may apply to you with your financial adviser.

Important note: These measures are proposals only and may not all become law.

1. Age Pension The Government proposed the following changes, all with a commencement date of 1 January 2017.

Increase of the Assets Test thresholds .

The Assets Test threshold describes the level of assets a retiree can have, on top of their family home, before their Age Pension entitlement is reduced under the Assets Test. The current and proposed thresholds are detailed below.

Assets Test threshold for full Age Pension

Currently

From 1 January 2017

Increase

Single, homeowner

$202,000

$250,000

$48,000

Single, non-homeowner

$348,500

$450,000

$101,500

Couple, homeowner (combined)

$286,500

$375,000

$88,500

Couple, non-homeowner (combined)

$433,000

$575,000

$142,000

Increase the Assets Test taper rate from $1.50 to $3.00

The Assets Test taper rate is used to determine a retiree’s Age Pension entitlement under the Assets Test. Currently a person’s Age Pension entitlement under the Assets Test is reduced by $1.50 for every $1,000 of assets above the Assets Test threshold (which is being increased as described previously). The proposed measure will increase the taper rate to $3, effectively reducing the amount of assets a person can have before they are no longer entitled to a part Age Pension entitlement. A person is no longer entitled to a part Age Pension when their assets exceed the levels set out below.

Currently

From 1 January 2017

Decrease

Single, homeowner

$775,500

$547,000

$228,500

Single, non-homeowner

$922,000

$747,000

$175,000

Couple, homeowner

$1,151,500

$823,000

$328,500

Couple, non-homeowner

$1,298,000

$1,023,000

$275,000

The combined impact of these two measures will mean that some recipients of the Age Pension with modest assets will be better off while a greater number will be worse off as they will either have their pension reduced or they will become ineligible to receive any Age Pension due to the maximum level of assets allowable reducing significantly.

Reducing the time a person may be overseas before their Age Pension benefit is reduced

From 1 January 2017, those affected by proportional pension portability will have their rate of pension reduced after six weeks from leaving Australia rather than the current 26 week period. Affected payments include Age Pension, Wife Pension, Widow B Pension and the Disability Support Pension. People affected by proportional pension portability include those who have less than 35 years Australian Working Life Residence. Australian Working Life Residence refers to the period of time a person has resided in Australia between the ages of 16 and age pension age. Pensioners overseas at the date of implementation are not affected unless they return to Australia and make a subsequent overseas trip.

The Government announced that they would no longer pursue the following previously announced measures affecting pensioners:

 limiting future indexation of the maximum Age Pension to CPI only

 freezing the Income Test threshold for three years

 re-setting deeming thresholds on the 20 September 2017 to $30,000 for single pensioners and $50,000 for pensioner couples.

2. Aged care

The Government has made the following Aged care proposals.

Removal of the rental income exemption from 1 January 2016

Under current rules where a person moves into a residential aged care facility, rents out their former home and pays part of their aged care accommodation costs by periodic payment, any rental income is excluded from the aged care means test. The proposed change will mean a new resident entering care from 1 January 2016 will have rental income counted towards their aged care means test. Consequently, they may be required to pay a higher means tested care fee. Increasing consumer choice within Home Care from 1 February 2017 My Aged Care Gateway will become responsible for allocating home care packages directly to consumers, giving them greater choice around the services they receive and their provider.

3. Other important announcements

 There will be increases to the Medicare levy low income thresholds, to apply from the 2014- 15 financial year, to help low-income taxpayers to remain exempt from paying the Medicare levy. New thresholds are: – $33,044 per annum for seniors and pensioners – $35,261 per annum for couples with no children (adding $3,238 per annum for each child) – $20,896 per annum for singles.  Early access to superannuation for people diagnosed with a terminal Illness will be allowed provided they have two medical practitioners certify that they have a life expectancy of less than 24 months instead of 12 months currently.

This newsletter contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.